"The company is confident in the integrity of its business processes and dealer arrangements." The news nevertheless hit the company's shares, which fell 7.1 per cent in Milan and 5.3 per cent in New York.

The suit, filed in US federal court in Illinois, charged FCA with racketeering and fraud and said the company's practices unfairly harmed the two Napleton dealerships based in Illinois and Florida.

The suit accuses an FCA official of offering Napleton Automotive president Ed Napleton US$20,000 in exchange for falsely reporting the sales of 40 new vehicles.

Napleton declined the payment, but later learned that another Napleton employee had agreed to report 16 false car sales.

The suit also cites a case where a rival Fiat Chrysler dealer reported 85 false new vehicle sales after "receiving tens of thousands of dollars as an illicit reward for their complicity in the scheme."

In some cases, false sales were reported at the end of the month, so that they could be "backed out" the next day so the warranty time-table on the vehicles would not be triggered.

The fake sales "create the appearance that FCA's performance is better than, in reality, it actually is," said the suit.

"These results are reported to the public at large and investment community. FCA has every reason to continue to be opaque about this issue as it would not be helpful for the truth to come to light at the same time as FCA may be pursuing mergers and other business opportunities."

The suit also alleges that FCA's conduct towards dealers "has been one of coercion and threats of termination" for reasons that have that have nothing to with performance.

Fiat Chrysler chief executive Sergio Marchionne, having already merged Italian company Fiat with US giant Chrysler, said last year he favours additional consolidation in the auto industry and urged General Motors to consider merging with his company.